Our experts across the region explore a number of pertinent themes that impact doing business in Africa.
Omar Zaki Senior Associate, Banking
Chirouette El Masry Associate, Banking
Adoption of a broader range of digital payment methods is accelerating in Egypt and the implementation of financial technology instruments improving the future of payments is in action. In addition to being aware of solutions like digital cards, consumer finance or Buy Now Pay Later (“BNPL”) products are being increasingly used by consumers in Egypt.
Egypt is now targeting to reach the financial inclusion, thus, the government is taking significant initiatives towards financial inclusion. The Financial Regulatory Authority and the Central Bank of Egypt lead said initiatives.
Consumers in Egypt are making use of fintech applications providing payment services and BNPL services, and discovering more of the digital economy’s benefits.
BNPL is a financial solution and the original concept started by allowing consumers to purchase a product immediately and pay for it over time in several regular instalments. Such concept consists of enabling the consumers to purchase certain products from the merchants and a BNPL service provider pays on behalf of the consumers in full value of such products to the merchants.
The Consumer Finance Law No. 18 of 2020 (“Consumer Finance Law”) was the first to address consumer financing activity and mandated that a license must be obtained from the Financial Regulatory Authority for companies that intends to provide consumer finance to consumers.
Pursuant to Article 1 of the Consumer Finance Law, consumer finance activity is defined as every activity that aims to provide financing allocated for the purchase of goods and services for consumption purposes, whenever it is carried out on regular basis, and whether the financing is through commercial payment cards or other payment methods approved by the Central Bank of Egypt. The definition also stipulates that an activity shall not be qualified as consumer financing if the repayment period for its instalments is less the period mandated by the Financial Regulatory Authority, which in all events is not less than six (6) months.
According to the Consumer Finance Law, any company engaging in consumer finance activity shall be required to obtain a license from the Financial Regulatory Authority, being the regulator overseeing all non-banking financial services in Egypt.
The Consumer Finance Law requires that companies wishing to engaged in consumer finance activities and obtain the relevant license from the Financial Regulatory Authority, must, inter alia, (i) be in the form of a joint stock company; (ii) the minimum issued and paid in capital of the company shall amount to EGP 10,000,000 (Ten Million Egyptian Pounds);and (iii) 50% of its capital is owned to juristic persons and 25% of its capital is owned to financial institutions (i.e. entities regulated by the Financial Regulatory Authority or banks licensed by the Central Bank of Egypt or under the supervision of the foreign counterpart of the Financial Regulatory Authority or Central Bank of Egypt).
Given the above definition of the consumer finance activity under the Consumer Finance Law and that the BNPL services provided to consumers enable them to repay the amount of their purchases over a certain period, the provided BNPL services will be considered as consumer finance services as defined in the Consumer Finance Law in the event the period over which the instalments are repaid by the consumer is six (6) months or more from the date of purchase. Hence, any company practicing said activity would be subject to the provisions of the Consumer Finance Law and the licensing requirements set forth by the Financial Regulatory Authority decrees.
Article 2 of the Consumer Finance Law lists the goods and services, which can financed by licensed consumer finance companies. These goods and services are as follows:
Vehicles and passenger cars of all kinds;
Durable goods (such as household appliances);
Educational services;
Medical services;
Travel and tourism services; and
Any other goods or services approved by the Financial Regulatory Authority.
In addition to that, the legal framework has expanded by the adoption of the new Fin-Tech Law No. 5 of 2022 (the “FinTech Law”).”
In addition to that, the legal framework has expanded by the adoption of the new Fin-Tech Law No. 5 of 2022 (the “FinTech Law”). The FinTech Law makes the Financial Regulatory Authority the only entity in charge of licensing and regulating non-banking FinTech companies. It also sets transparency and governance standards and protects consumer rights.
The purpose of the FinTech Law is to regulate those working in the non-banking financial sector such as consumer financing using digital platforms among other sectors.
This could be an essential milestone towards the financial inclusion and digital transformation in Egypt.
The FinTech Law defines “financial technology” as “Any mechanism that utilizes modern and innovative technology in the non-banking financial sector to support and facilitate financial services, financing and insurance activities using applications, software, digital platforms, artificial intelligence, or electronic records”.
The newly issued Fintech Law allows licensed entities providing non-banking financial services (including BNPL services) as well as entities under incorporation providing consumer finance services to establish digital platforms for the provision of the services.
The Fintech Law highlights the main 3 licensing requirements of companies operating in the field of non-banking financial services (including consumer finance activity) using financial technology. Such requirements notably include: (i) determining direct and indirect shareholding structure as well as related parties of the applicant; (ii) the required technological infrastructure, facilities, information technology, and other security means are availed by the applicant’ and (iii) the company’s activity being limited to those specified in the license issued by the Financial Regulatory Authority. That said, the Financial Regulatory Authority shall issue further regulations addressing such additional requirements pertaining to shareholding structure, board of directors’ composition as well as conflict of interest regulations. In this regard, it should be noted that the FRA has issued a recent decree No. 58 of 2022 regarding the required conditions and procedures for incorporation, licensing and approval of companies and entities wishing to engage in non-banking financial activities through financial technology.
The provision of BNPL services is on the rise in Egypt and is highly sought by consumers in Egypt when buying goods and services and hence attracting new players in the region to provide these type of services in Egypt. Further, the promulgation of the FinTech Law has set the licensing framework to provide BNPL services through a digital platform and empowers start-ups to issue FinTech licenses with lessened requirements.
For further information, please contact Ehab Taha , Omar Zaki or Chirouette El Masry.
Published in September 2022
